Wal-Mart, Other Big Merchants Start Bypassing The Banks

While banks are busy whining about federal regulations, real or imagined, big merchants are moving to eat their cheese.

This wasn't a danger two years ago, or even a year ago. Systems like Square, while growing, are not a threat because they're basically an interface, another way to use credit cards. Even a system like Isis needs banks as partners. When the Girl Scouts go into mobile payments, it's no big deal because the scouts are just finding a way to process existing credit cards.

These moves don't threaten banks directly. They may favor some large banks over others, they may favor new payment networks over incumbents, but they don't endanger banking itself.

The danger has always been that someone else might try to grab the merchant or consumer side of transactions. The danger is now here.

The moves by Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) to deliver a mobile payments system, combined with Home Depot's (NYSE:HD) decision to start taking Paypal (NASDAQ:EBAY) in its stores, are not like Square or Sage. They're a serious effort to get into the real action - the money, the data, the accounts. You know, banking.

As is often the case it's Wal-Mart that's furthest along and represents the largest threat. The company already has its own payment card, a reloadable pre-paid card. Despite its abandonment of plans to create its own bank in 2007, it's doing a lot of what you can call banking services - cashing paychecks, handling money transfers, and (now) taking the equivalent of checking account deposits.

A Wal-Mart, Target or Home Depot mobile payments solution gives those merchants the power to do instant couponing with customer data, but it's a very short step from that to merchants acting as banks themselves, through processors such as Visa and MasterCard, and in time cutting the banks out of their fees and float entirely.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

We only use your contact details to reply to your request for more information.We do not sell the personal contact data you submit to anyone else.

Thank you for your interest in Seeking Alpha PROWe look forward to contacting you shortly for a conversation.

Thank you for your interest in Seeking Alpha PRO

Our PRO subscription service was created for fund managers, and the cost of the product is
prohibitive for most individual investors.
PRO Alerts is our flagship product for individual investors who want to be faster
and smarter about their stocks. To learn more about it, click here.
If you are an investment professional with over $1M AUM and received this message
in error, click here and you will be contacted shortly.

Thank you for your interest in Seeking Alpha PROWe look forward to contacting you when we have an individual investor product ready!